Investment funds special feature in Globe and Mail

Transcription

Product: Standard
PubDate: 02-11-2016 Zone: GTA
Edition: 1
Page: E1 ( SPReport_1394397)
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Time: 02-09-2016
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SPONSOR CONTENT
INVESTMENT
FUNDS
THE GLOBE AND MAIL
Not sure.
I find investing
confusing.
So, how is your
portfolio
performing?
T H U R S D AY , F E B R U A RY 1 1 , 2 0 1 6
I wish there was a
clearer way to see
exactly what’s going
on with my money.
SECTION IFIC
You’ve worked hard for your money
and made short-term sacrifices to save
and invest for your future. But perhaps
you don’t feel entirely confident
that you have a clear picture of your
investment performance and the fees
you pay. Or maybe you’ve even put off
getting started because it all just feels
too complicated.
Help is on the way.
New standards will help investors better understand
their investments and make informed choices
F
or Canadian investors, the stakes
have never been higher. Fewer
than ever will have employersponsored pensions to rely on in
the 20 to 30 years they’re likely to
live after their last paycheque. With
interest rates perilously low, equity
market participation is essential –
even as heightened volatility and
economic uncertainty make it more
uncomfortable.
Alongside these profound shifts,
Canada’s funds industry has grown
exponentially, innovating to provide a
wealth of valuable services and products. But as offerings have expanded,
so has complexity, along with the
challenges of communicating with
investors with a broad spectrum of
individualized needs.
Over the next year, the funds industry will hit the proverbial reset button,
introducing changes designed to
deliver greater clarity, ease of access
and transparency in this new world.
These efforts are part of an industry-wide initiative known as Client
Relationship Model - Stage 2 (CRM2).
The industry has been hard at work
setting the stage for a new disclosure
framework, paving the way for a redesign of communications standards
throughout the investment industry,
from dealer firms and mutual fund
companies to portfolio managers.
“It is all about enhancing the ability
of Canadians to make good investment
decisions,” says securities lawyer
Rebecca Cowdery, a partner at Borden Ladner Gervais LLP and former
“Our ultimate goals are to
improve understanding,
build financial confidence
and enhance decisionmaking – because we
know that informed
investors make better
decisions...”
Joanne De Laurentiis
is president and CEO of the Investment Funds Institute of Canada
Ontario Securities Commission regulator. “The whole concept behind this
is giving investors more information
in a way that helps them understand
what is happening in their investment
accounts.”
The aim is ambitious, and seen
throughout the industry as crucial: to
collectively advance understanding
and help investors get the most out
of their relationships with advisers.
Consistency across sectors and companies is a primary goal, says Ms.
Cowdery. “Everyone will be giving
performance information to their clients in the same way. It’s building on
information the industry has always
provided investors, in a format that will
make it easier for them to understand
their results and compare performance
of different investments. Additional
information will also help them clearly
understand the cost they pay for advisory and distribution services.”
ABOUT
The Investment Funds
Institute of Canada
(IFIC) is the voice of
Canada’s investment
funds industry. IFIC
brings together 150 organizations, including fund managers and distributors,
to foster a strong, stable investment sector where investors can realize their
financial goals. The organization is proud to have served Canada’s mutual
funds industry and its investors for 50 years.
For more information, visit ific.ca.
“The industry recognized early on
that, for the benefit of investors, we
needed to address these changes
co-operatively,” says Joanne De
Laurentiis, president and CEO of the
Investment Funds Institute of Canada
(IFIC). In fact, IFIC’s CRM2 initiatives
leveraged the contributions of the
greatest number of industry volunteers contributing to a single issue
in the organization’s 53-year history.
One outcome of this unprecedented collaboration is two model
reports released in the spring of 2015.
If all dealers follow this approach, the
resulting consistency – along with
clarity of language and design – will
make it easier for all mutual fund
investors to understand the breadth
of distribution and advisory services
they receive, what they pay and
whether they are on track to meet
their financial goals.
“Together, we’re working to provide consistent, clear information
that will help investors develop their
savings habits, decide on savings
objectives, choose products to meet
those objectives, and have more
meaningful conversations with their
advisers,” says Ms. De Laurentiis.
Informed convers ations that
strengthen investor-adviser relationships are well worth it, given that
investors who work with advisers are
proven to do measurably better than
those who don’t. More information is
available at ific.ca.
A 2015 Pollara poll commissioned
by IFIC found that 94 per cent of
those surveyed agreed that they trust
their advisers to give them sound
advice, and nine out of 10 agreed
that they obtain better returns than
they would if investing on their own.
But as CRM2 changes will highlight
fees paid, it will become even more
important for advisers to articulate
their value as they help investors
manage costs.
“The financial well-being of Canadians is a core value of our industry,”
says Ms. De Laurentiis. “Advisers
work hard every day to instill effective savings and investment habits
through one-on-one conversations
with clients. We support these efforts
by creating clear, plain-language
materials.”
IFIC has also created a cross-sector
task force to develop a consistent
body of smart practices that will help
advisers better prepare clients for the
possible loss of cognitive skills associated with an aging society.
“Our ultimate goals are to improve
understanding, build financial confidence and enhance decision-making
– because we know that informed
investors make better decisions and
are more disciplined about staying
the course during uncertain economic
times,” stresses Ms. De Laurentiis.
This content was produced by Randall
Anthony Communications, in partnership
with The Globe and Mail’s advertising
department. The Globe’s editorial
department was not involved in its creation.
Online? Visit http://informedinvestor.ific.ca or globeandmail.com/adv/investmentfunds2016 for more information.
INSIDE
DATA. Funds industry leverages
technology and education to
meet the individualized needs of
investors across the generational
spectrum. IFIC 2
EVIDENCE. Clients working with
advisers are better off when it
comes to protecting and building
wealth.
IFIC 3
RISK ASSESSMENT. Market
volatility can be unsettling, but
having a plan and advice can
help in navigating uncertain
times. IFIC 4
RELATIONSHIPS. Six tips
designed to give investors
the confidence and knowledge
to select an adviser.
IFIC 5
SHOPPING ADVICE. With over
2,800 different mutual funds
available in Canada, there is a
solution designed to match every
need. IFIC 7
THE GLOBAL MARKET NEVER SLEEPS.
NEITHER DO WE.
In today’s market, finding the best opportunities takes global perspective. Ours comes
from over 650 investment professionals on the ground across more than 25 countries.
Put our expertise to work for you via our wide range of global funds.
See our global outlook at
franklintempleton.ca/global
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values
change frequently and past performance may not be repeated. © 2016 Franklin Templeton Investments Corp. All rights reserved.
Product: Standard
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T H E G L O B E A N D M A I L • T H U R S D AY , F E B R U A RY 1 1 , 2 0 1 6
INVESTMENT FUNDS
Product: Standard
PubDate: 02-11-2016
Zone: GTA
Edition: 1 Page: E3 ( SPReport_1394402)
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SPONSOR CONTENT • IFIC 3
T H E G LO B E A N D M A I L • T H U R S D AY , F E B R U A RY 1 1 , 2 0 1 6
Visit http://informedinvestor.ific.ca or globeandmail.com/adv/investmentfunds2016
87
35
%
%
To meet their financial goals, Canadians have greater confidence in
mutual funds (87%) than in other financial products such as stocks
(62%), GICs (61%) and bonds (55%). (Pollara, 2015)
Investment funds account for 35% of Canadians’
financial wealth – up from 31% in 2012.
(Investor Economics, 2014)
SURVEY
INTERVIEW
Funds industry leverages technology, collaboration
to meet evolving needs of investors
Canadians can benefit from access to high-quality
advice, well-regulated funds industry
P
ollara’s annual survey of Canadian mutual fund investors,
commissioned by the Investment
Funds Institute of Canada (IFIC), found
that – for the 10th year in a row – mutual funds lead the way when it comes
to investor confidence. Confidence in
advisers also remains high, with 94 per
cent responding that they trust their
advisers to give them sound advice.
The industry is working hard to
maintain that confidence even as
demographic shifts transform investor
needs and expectations, says John
Adams, IFIC’s chair. “From just six per
cent of the workforce in 1999, millennials became the largest generation in
the Canadian workforce in 2014 – just
over 35 per cent, compared to Gen
Xers at 32.5 per cent, and boomers,
who have fallen below 31 per cent.”
“By collaborating as an
industry, with regulators
and with investors, mutual
fund companies are
continuously evolving to
empower investors.”
John Adams
is chair of the Investment Funds
Institute of Canada
The first generation born into a digital world, millennials will profoundly
impact the economy as well as the
investment markets as they move
into their prime spending and savings
years, Mr. Adams points out. “Just as
they are changing everything from the
way we interact socially to the way
we own cars, they will demand new
approaches to financial advice.”
At the same time, the transition of
the baby boomer generation into the
retirement phase continues to drive
industry change, he says. “The need to
provide an income stream for 20 to 30
years of retirement is already changing
the types of products being created and
triggering a growing focus on solutions
to help today’s retirees prepare financially for the health-care services they
will require down the road.”
With longer life expectancy and
an aging population, rising rates of
cognitive decline will also become a
significant industry challenge, says
Mr. Adams.
Changes in the ability to make financial decisions can be one of the first
indicators of cognitive impairment,
so financial advisers will be called on
to help investors and their families
plan for these potential challenges.
“In turn, advisers are looking to the
funds industry for training, smart
practices and support, and – as an
industry – we’re working together
to ensure we’re ready to meet those
needs,” he says.
Advanced technologies are an important tool in adapting to these shifts,
says Mr. Adams. Just as it has changed
the way fund managers do research
and analyze trends, “it enables us
to provide more meaningful information and personalized service to
our clients,” he explains. “It can free
financial advisers to focus more on
coaching, helping their clients build
knowledge and confidence, and also
providing tailored advice.”
For clients with basic needs who
are just starting out as investors,
technology-driven robo-advice services can potentially help advisers
keep the benefits of financial advice
affordable and convenient to access.
“By collaborating as an industry,
with regulators and with investors,
mutual fund companies are continuously evolving to empower
investors,” says Mr. Adams. “We’re
both responding to and creating
transformational change.”
What new information can investors expect to receive?
The industry is making several changes to provide investors with clear information.
The changes will help you have better conversations with your financial adviser about
your progress towards your financial goals. Here’s how.
RECEIVE FUND FACTS
BEFORE YOU BUY
Beginning May 30, 2016, your dealer is required to
provide you with a document called “Fund Facts”
before you purchase a mutual fund. Your mutual
fund purchase cannot be completed until Fund Facts
has been delivered to you.
Fund Facts is an important document with key facts
about the mutual fund you are purchasing. Every
mutual fund has its own Fund Facts, with information about the fund’s holdings, its performance,
and the risks and costs of buying and owning the
fund. You should always review Fund Facts when
you purchase a mutual fund so that you are familiar
with the fund’s key features.
Fund Facts could be delivered to you in person,
through email or through other means. The way
you receive it will depend on how you interact
with your dealer and the delivery method that your
dealer chooses.
NEW INFO ON ACCOUNT STATEMENTS
As of December 31, 2015, all securities firms are required to provide the
following information in your account statement:
• The total amount you paid to purchase your investment, including any
transaction charges related to your purchase.
• The price at which your investment can be sold for on the market at a
point in time.
• The total value of all cash and investments in your account at the beginning and the end of the statement period.
• Whether your mutual fund is subject to a deferred sales charge – a fee
that does not have to be paid until you sell your fund. After a certain
number of years, these charges usually decline to zero.
• Whether your mutual fund is covered by an investor protection fund
and the name of that fund.
• Information as to who is named as the owner of the investment and a
description of how it is held. [Some investments are held in the client’s
name and some are held in the firm’s name. It’s up to you.]
Ask your financial adviser to explain any terms or content included in
your statement that you don’t fully understand. Better conversations
with your adviser lead to more informed decisions that help you reach
your financial goals.
TWO NEW REPORTS
BEGINNING IN 2017
You will receive two new annual reports beginning next year.
• The first report will outline your investment’s
performance over the past year. This report
will help you understand whether you are on
track to meet your financial goals.
• The second report will tell you how much
you have paid in dollars and cents to your
investment firm for the services that you
have received.
The investment funds industry is encouraging
firms to adopt consistent, clear approaches
that will help investors understand the new
information.
Experts remind us to take ownership of our
financial future. Read your statements! Meet
with your financial adviser on a regular basis to
ask questions about the products and services
in your portfolio.
Myths and facts about the changes you will see
Myth #1:
Fact:
The changes apply
mainly to mutual
funds.
The changes apply to more than mutual funds. They
apply to all securities and to all dealers and portfolio
managers registered with any Canadian securities
commission. The securities commissions are encouraging firms to include non-securities products
in client reporting, to the extent possible.
Myth #2:
Fact:
Investors will begin
receiving the two new
annual reports as of
July 15, 2016.
The rule comes into effect on July 15, 2016, at which
point dealers have one year in which to begin sending these reports to their clients. In the majority of
cases, you will begin receiving these reports early
in 2017. This is because most firms are choosing to
provide the information on a calendar year basis
(January to December).
Myth #3:
The report on charges
and compensation will
tell investors how
much their adviser is
being paid.
Myth #4:
The report on charges
and compensation
will tell investors the
total cost of their
investments.
Fact:
The report on charges and compensation provides details about the
money received by the dealer firm over the previous year to provide services to the investor. A portion of this money is paid as compensation to
the investor’s financial adviser. The report does not provide a breakdown
of how much is paid to the adviser and how much is kept by the dealer
firm. Each firm determines this amount differently, based on its business
model and split in responsibilities between the firm and the adviser.
Fact:
The report will focus only on the amounts paid either directly or indirectly by an investor to the dealer firm. For mutual funds, it does not include
the amount paid to the investment manager. For an understanding of
the total cost of a mutual fund, investors can review the fund’s management expense ratio (MER), which can be found in the Fund Facts document for individual mutual funds, as well as in the financial statements.
Q&A with Jordy Chilcott,
President & CEO, Dynamic Funds
It’s often stated that getting financial advice pays. Do you agree?
Yes. Getting professional advice makes
a big difference, especially in times
when markets are volatile. Advisers
help their clients to define – and stay
with – long-term goals, rather than
making short-sighted decisions based
on emotional reactions. The fundamental philosophy of our business is
reflected in our tagline, “Invest with
advice,” because we believe that for
protecting and building wealth, clients
are better off on any reasonable measure when working with an adviser.
What is the evidence for the value
of advice?
There is a lot of research that corroborates that people are better off
with advice. A study by the Center for
Interuniversity Research and Analysis
on Organizations (CIRANO), for example, found that advised households
save at double the rates of non-advised
households, at 8.6 per cent compared
to 4.3 per cent. That’s a substantial
difference. The same study shows that
a household that has worked with a
financial adviser for 15 or more years
has 2.73 times more assets compared
to those without financial advice.
What about the argument that
households that engage advisers
may have been better off to start
with?
That’s a question we wanted to explore,
so through the Investment Funds Institute of Canada’s 2015 annual investor
survey conducted by Pollara, we asked
investors at what point they first started
seeking advice. Thirty-nine per cent of
survey respondents said they had less
than $10,000 when they first started
using an adviser.
So you recommend getting advice
early on?
I believe that people should seek advice
that is appropriate for their age and
financial circumstances, which may
initially be very simple. As their assets
grow, they will move up on the advice
continuum. But at every level, consumers should make sure they are getting
the appropriate value rather than buying
into the “cheaper is better” argument.
They should focus on the outcome.
Robo-advice – where does it fit on
the investment continuum?
If we believe in advice, we have to
acknowledge Robo-advice as a form of
it. It fits somewhere on the continuum
between doing it yourself – which I
don’t recommend – and full-service advice. As an online service that provides
automated, algorithm-based portfolio
management advice, Robo-advice can
be a valuable first step. It’s relatively
small today. While I believe Robo-advice
will grow and evolve, I don’t think it
will replace interactions with human
advisers for more complicated needs.
What is your view on active management versus passive strategy?
It doesn’t have to be one or the
other – a client can have both actively
managed investments and passive
investments in their portfolio. The
conversation with a financial adviser
about what kind of return is envisioned
and what the client’s risk tolerance is
will determine what strategies are right
for their unique needs.
What should consumers know about
active management?
Real active management outperforms
most of the time, but most does not
mean all. The real question advisers can
help to answer for consumers is whether
managers are actually active rather than
what the industry calls “closet indexers.”
Closet indexers charge an active fee, but
their portfolios are very similar to the
benchmark portfolio. There is a measure
that a number of firms use – called Active
Share – that evaluates the percentage of
stock holdings in a manager’s portfolio
that differ from the benchmark index. In
Canada, if more than 60 per cent of your
return is made up of individual securities
that aren’t represented in the benchmark,
you’d start to get in the range of what
would qualify as legitimately active
management.
Can you give an example of how
companies are working to deliver
value to customers?
As a manufacturer, Dynamic Funds
has invested in implementing fixed
administration fees across our lineup,
a model that provides the end consumer with some cost certainty. By
focusing our efforts on growing our
fee-based series over recent years, we
are recognized as a leader in product
pricing. And when it comes to supporting the advice channel, we have an
award-winning “Snapshots” program
that offers tools for the myriad of life
events clients may go through such
as marriage, birth of a child, children’s
education, divorce and death of a
spouse. We support advisers with their
client interactions as they experience
these real life events.
What can you say about the investment funds industry in Canada?
From what I have observed in the 30
years I’ve been in the business, the
standards for advisers in Canada have
improved – and will continue to improve
– as a result of regulatory changes. Due
to stringent requirements, we not only
have access to high-quality advice – we
also have a well-regulated industry
both on the manufacturing and the
distribution end of the business. That’s
something Canadians can be proud of.
WHY INVEST
ON YOUR OWN
WHEN YOU CAN
INVEST WITH
ADVICE?
At Dynamic Funds, we strongly believe that investors are best served
when they “Invest with Advice” – so much so, that we put it as our
tagline. In fact, research shows that investors who work with an
advisor have more than 2.5 times the financial assets than those
without a financial advisor*.
SEE WHY ADVICE MATTERS.
dynamic.ca/Advice
*Econometric Models on the Value of Advice of a Financial Advisor, CIRANO, Claude and Nathalie Viennnot-Briot, 2012
Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus
before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Dynamic Funds® is a
registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.
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INVESTMENT FUNDS
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The economic footprint of Canada’s mutual funds
industry in 2012 was $17-billion and supported 192,600 jobs.
2.7
$17-B
x
The longer people receive advice, the more their wealth grows – by as
much as 2.7 times more than households that do not access advice.
(Center for Interuniversity Research and Analysis of Organizations, 2012)
(Conference Board of Canada, 2013)
STRATEGY
PORTFOLIO PERFORMANCE
Balancing long-term goals and short-term factors
The six drivers of an effective adviser relationship
K
number of studies have proven
that investors who work with
financial advisers do better
than those who don’t. The key to
reaping those benefits is finding the
right adviser, someone you can work
effectively with over the long term.
“You are the CEO or the co-CEO of
your family, and your financial adviser is your personal CFO,” says Carol
Lynde, president and chief operating
officer of Bridgehouse Asset Managers and a director of the Investment
Funds Institute of Canada. “They
help you make the informed financial
decisions that enable you to achieve
what is really important to you and
your family. The right adviser delivers
tremendous value.”
How do you know when the fit is
right? To help, Bridgehouse has developed a series of tools called The
Value Dialogue, including a video with
financial advice expert John Bowen
that outlines the six drivers of a successful financial advice relationship.
“The whole point is to give investors
confidence and control over their
selection process, setting the tone
and expectations for the relationship,”
says Ms. Lynde.
The six key adviser characteristics
are:
eep calm, stick to your plan
and work closely with your
investment adviser.
That’s the advice Duane Green,
managing director of Canada for
Franklin Templeton Investments, has
for investors who are worried about
the current volatility in global stock
markets.
Franklin Templeton Investments
manages more than $40-billion on
behalf of Canadian individuals and
institutions.
“We know that this is not an easy
time for investors, particularly those
who are nearing retirement or who
have already retired,” says Mr. Green.
“During volatility, there’s a natural
tendency for investors to focus on risk
“Without a plan,
investors tend to be more
susceptible to making
emotions-based decisions
about their portfolios.”
Duane Green
is managing director of Canada for
Franklin Templeton Investments
avoidance, just as it may be easier for
them to focus on maximizing returns
in rising market conditions. But now
is not the time to be making hasty
decisions to get out of the market.”
While 2016 has had a rocky start
amid ongoing concerns over a slowdown in China, weak commodity
prices and a depreciating Canadian
dollar, the situation has also created
investment opportunities in Canada
and globally.
“Diversification is key to dealing
with periods of market volatility,”
says Mr. Green. “This includes having
an appropriate asset allocation that
is invested in line with a plan and as
a result of the value received from
seeking professional advice.”
He notes that investors who have
neither a plan nor an adviser may be at
a disadvantage as they try to navigate
through what seems to be increasing
market turbulence. However, it’s never
too late to get help.
“We believe investors should work
with an adviser – or find a suitable
adviser if they don’t have one – to
develop a plan that keeps both risk
exposure and return potential in
mind, as well as income needs and
capital growth, regardless of what
the markets are doing. This requires
honest and open conversations and is
underscored by the value of advice.”
says Mr. Green.
Investors should keep their goals
in mind even though they may seem
threatened by current events.
“In down markets, investors may
be more focused on making the
journey as smooth as possible by
limiting downside risk,” he says.
“Being completely risk-averse could
put long-term goals out of reach, so a
careful balance is needed – one which
takes into account both short-term and
long-term factors.”
That’s where having a plan comes
in, adds Mr. Green. “Without a plan,
investors tend to be more susceptible
to making emotions-based – and potentially damaging – decisions about
their portfolios. It’s far less likely that
this will happen if they have a plan and
are committed to seeing it through with
the support of a qualified adviser.”
A
Some of the services that dealer firms provide:
ADMINISTRATION
“[Advisers] help you make
the informed financial
decisions that enable you
to achieve what is really
important to you and your
family. The right adviser
delivers tremendous
value.”
Carol Lynde
is president and chief operating
officer of Bridgehouse Asset
Managers
EXPERT ADVICE
INVESTOR PROTECTION
• Process transactions
• Quantify your financial goals
• Supervise your accounts
• Prepare quarterly
statements and other
reports
• Understand the amount of
risk you are comfortable with
• Review products
• Review your investment
performance and progress
toward your goals
• Ensure products are
suitable for you based on
the information you
provide about yourself
“Advisers are coaches who reinforce
the fact that what’s happening today
in the market has very little to do with
their clients’ individualized plans.”
An effective adviser relationship
is about far more than money, she
• Identify suitable products
emphasizes. “It’s about maximizing
the probability of achieving dreams –
putting your kids through university,
buying a retirement home at some
point, going on a trip every other year.
“Whatever your dreams, once you
• Review your adviser’s
recommendations
find the right adviser, he or she can
help you achieve them.”
To view the video, visit
bridgehousecanada.com/the-valuedialogue-investor-home.
CHARACTER: Do they demonstrate
self-discipline and integrity?
CHEMISTRY: Do you feel a connection?
CARING: Do you feel they are empathetic and care about you and your
goals?
COMPETENCY: Do they have the necessary skills and knowledge?
Experience the value of
professional investment
management
COST EFFECTIVE: Do they deliver
good value?
CONSULTATIVE: Do they use a collaborative process that makes you feel as
if you’re working together rather than
being told what to do?
OUTLOOK
Focus on risk management and diversification
A
fter a turbulent start to the
year on North American stock
markets, it is little wonder that
investors are being advised to avoid
excessive risk and focus instead on
preserving their capital.
Bruce Cooper, chief investment
officer, TD Asset Management, and
senior vice-president, TD Bank Group,
believes a diverse portfolio – that
includes high quality assets, as well
as domestic and global equities – can
be a good strategy for 2016, which he
expects to be another year of weak
growth, low investment returns and
heightened volatility in global financial
markets.
He sees no quick end to some of
the forces that have sent the price of
oil crashing below $30 (U.S.) a barrel,
putting severe pressure on the Canadian dollar and prompting the Bank of
Canada to drop its GDP annual growth
forecast to 1.4 per cent from 2 per cent
in October 2015.
“This is a time to focus on risk
management,’’ he says. “It is not
really about how can I make tons of
money. It’s about how can I protect
myself to ensure that I preserve capital
and defend myself so that when opportunities present themselves, I am
in good shape to take advantage of
those opportunities.”
Investors can arm themselves by
holding a good variety of high-quality
assets, including domestic and global
equities that have the ability to increase their earnings and dividends
in a low-growth environment.
“This is a time to focus
on risk management. It is
not really about how can
I make tons of money. It’s
about how can I protect
myself...”
The video also provides seven
questions investors can ask to help
determine the presence of these characteristics in initial interviews.
“John doesn’t pull any punches,
encouraging investors to ask hard
questions about the adviser’s background, capability, what services they
offer – and what processes they use to
deliver those services and create a great
investor experience,” says Ms. Lynde.
A relationship with a trusted adviser
becomes even more valuable during
times of high market volatility, she
adds. “We’ve seen from the Dalbar
Quantitative Analysis of Investor Behaviour that investors tend to buy high
and sell low, because they get caught
up in the kind of heightened negative
news we’re seeing now.
IMPACT
Expertise is built right into every TD Mutual Fund
TD Mutual Funds can offer an easy way to tap into the potential returns
of equity and fixed income markets and help you reach your longer term
savings goals, such as retirement.
BOOSTING THE ECONOMY
THROUGH FINANCIAL ADVICE
Bruce Cooper
is chief investment officer, TD
Asset Management, and senior
vice-president, TD Bank Group
Investors can arm themselves by holding a good variety of high-quality assets, according Bruce Cooper, chief
investment officer, TD Asset Management. ISTOCKPHOTO.COM
A typical portfolio should also include
some cash to keep some capital safe,
as well as investment-grade corporate
bonds to provide some income and
diversification.
“We are cautious about both emerging markets and high yield, and prefer
developed markets and investmentgrade bonds,” he says.
In an interview, Mr. Cooper said he is
not pessimistic enough to anticipate a
stock market crash. “As you know from
our outlook, we characterize our views
as cautious. We expect modest or
muted or no returns, but not a crash.”
But he says investors should remember that major economies are locked in
a period of persistent low growth due
to high debt levels and unfavourable
demographics in Canada, United States,
Europe and China, where working
populations are either growing very
slowly or even shrinking.
“That is something that is not going
to change meaningfully overnight. It
is yet another reason for investors to
err on the side of caution.”
But no matter what the investment
climate looks like in the short term, Mr.
Cooper believes people are always better off working with an adviser to figure
out their long-term goals, develop a
plan and then stick to that plan.
“For most people, assuming you plan
to leave the money invested for a long
enough time period, it would make
sense to have some equities (albeit
fewer equities today than you might
have had a year or so ago),” he said.
He believes 50 per cent of equities
should be located outside of Canada.
That’s because the Canadian market
is resource-oriented and tends to lack
companies in more stable sectors,
such as pharmaceuticals, consumer
staples and technology. “As Canadians,
it is useful to have exposure to those
kinds of businesses. To get that, you
really need to go outside Canada,”
Mr. Cooper says.
On the equity side, U.S. exposure
offers a window on the U.S. dollar,
which tends to perform better when
times are tough. It also provides currency diversification. “We saw how
important that was last year when
the Canadian dollar declined,” Mr.
Cooper says.
Given low commodity prices and
weak growth in Canada, it is likely
that the Canadian dollar will remain
at current low levels for some time,
according to TD Bank.
People with financial advisers
save more, which not only prepares them better for retirement,
but fosters long-term economic
growth, according to a 2014 Conference Board of Canada report.
Building on data that proves
that households with a financial
adviser are more disciplined and
accumulate higher savings than
those without, the study suggests that boosting the number
of Canadians receiving advice
can have a substantial long-term
economic impact.
While domestic savings enable individuals to prepare for
retirement, the report assumes
that at least a portion would be
invested in Canada. The resulting
economic potential – including
additional profits, wages and tax
revenues – would contribute to
higher investments and income.
The conclusion? A 10 per cent
increase in the number of households using advisers could boost
the size of the economy by more
than $2-billion by 2060.
•
Professional fund managers and analysts constantly monitor market
conditions and make investment decisions on behalf of fund investors.
•
Diversification within or across sectors, investment types and
geographic markets.
•
Active management may help reduce volatility of fund performance.
And when you choose TD Mutual Funds, you benefit from the integrity and
leadership of TD Asset Management Inc.
Visit tdassetmanagement.com or talk to your advisor
TD Investment Services Inc. and TD Waterhouse Canada Inc. (Member –Canadian Investor Protection Fund) are each principal distributors of certain series of certain Funds. TD Investment Services Inc. makes available those series of those Funds for which it is a principal distributor. The Funds are also available through
TD Waterhouse Canada Inc. and through independent dealers. TD Mutual Funds and the TD Managed Assets Program portfolios are managed by TD Asset Management Inc., a wholly-owned subsidiary of The Toronto-Dominion Bank and are available through authorized dealers. ® The TD logo and other trade-marks are the
property of The Toronto-Dominion Bank.
IFIC 6
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14:38 Colour: C
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INVESTMENT FUNDS
PubDate: 02-11-2016 Zone: GTA Edition: 1
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$4-B
85
%
In 2012, the economic activity of the mutual funds industry
contributed $4-billion to the federal government and $3-billion
to provincial governments. (Conference Board of Canada, 2013)
85% of Canadians’ mutual fund purchases include
advisory services paid through the fund, rather than
through a separate fee. (Investor Economics, 2014)
Mutual funds
Gaining access to expertise through the power
of the collective
S
Colour: C
K
Y
M
FUND MANAGEMENT
electing a fund manager is a
decision that requires careful
consideration, as well as “doing
your homework,” says Tim Wiggan,
CEO, TD Asset Management. “Whether
you are just starting your investment
journey or are already further along,
you need to take the time to understand whom you are doing business
with, whom you are entrusting your
money to,” he explains.
Especially in times of high volatility, it pays to be thorough, says Mr.
Wiggan, who adds that “reputation
matters.
“Fortunately in Canada, we have a
number of high-quality asset managers who have a good track record over
long periods of time. In my opinion,
you want to see how they have performed during difficult times.”
Yet before selecting a fund manager,
investors need to be clear on their
goals, says Mr. Wiggan, and that’s
where advice plays an important
role. “An adviser would sit down with
clients and determine what they are
trying to accomplish. Let’s say one
individual’s goal is growing his or
her portfolio over a long period of
time. Another individual would like
to generate income from a portfolio.
“Once those objectives are determined, you and your adviser would
partner with an asset manager who
manages your money against those
goals,” he adds. In the two examples,
the adviser would look for stable
income-generating funds on the one
hand and growth funds on the other.
14:43
“Fortunately in Canada, we
have a number of highquality asset managers
who have a good track
record over long periods of
time. In my opinion, you
want to see how they have
performed during difficult
times.”
Tim Wiggan
is CEO, TD Asset Management
Mr. Wiggan explains that there is
a wide range of mutual funds available in Canada, allowing investors to
find a solution that fits their personal
objective.
By combining assets from many
individuals, mutual funds create efficiencies for investors, who share
administrative costs and gain access
to money management services.
“With mutual funds, the numbers
are generally so high that a range of
investors – from individuals to large
pension funds – are served by the
same team of the best and brightest,”
Mr. Wiggan explains. This affordable
access to professional investment management – which would otherwise
be quite difficult to attain with small
amounts of capital – also allows for the
delivery of additional services, such as
quarterly statements and records for
tax purposes.
Transaction costs like commissions
and fees that apply to active funds are
also divided between a large number
of investors. “It’s an efficient way
for an individual to gain access to
expertise through the power of the
collective,” Mr. Wiggan adds.
With more than 2,800 different mutual funds available in Canada today,
there is a solution designed to match every investor’s need.
Since advisers as well as managers
are actively involved in creating and
realizing a plan, both their efforts are
reflected in the fees investors pay. “In
addition to the advice fee, you have
an asset management fee, which
gives you exposure to the experts
who manage your money,” he says.
Any company that offers funds to
the public makes a range of information available online or in printed
material. This can aid investors and
advisers in the decision-making process – it can also help in choosing
a fund manager, Mr. Wiggan states.
PLANNING
FINANCING THE FUTURE: RETIREMENT READINESS
A CORNERSTONE OF CANADIANS’ RETIREMENT SAVINGS
Asssets under management reported as of December 31, 2014
One of the core activities of the investment funds industry is dedicated to
helping Canadians build wealth to sustain them in retirement.
As Canadians live longer, a higher percentage of them will need to rely on
individual savings and public pensions. Are they prepared? According to a
McKinsey & Co. report, 83 per cent of Canadian households are on track to
maintain their standard of living in retirement. The remaining 17 per cent,
mostly middle-class Canadians, will face challenges that originate mainly
from a lack of long-term savings preparedness, not a lack of income or resources.
1,400
1,200
($ billions)
1,140,954
1,000
800
549,802
600
The report also notes that Canadians’ savings in mutual funds of $1.2-trillion
are 2.5 times the assets being managed within the Canada and Quebec
pension plans.
400
Mutual funds account for 47 per cent of all wealth held in RRSPs, and research demonstrates that individuals who invest in mutual funds are not
only better prepared for retirement, they also report higher levels of confidence about their retirement readiness.
0
238,788
200
CPP Investment
Board
Top 10 Canadian
Pension Funds*
Mutual
Funds
* Source: Benefits Canada Top 100 Pension Funds
Mutual funds features
What sets mutual funds apart from other
types of investments?
EASY ENTRY
• Ability to start investing with a small amount of
money (a single investor can purchase units of a
fund for as little as $50).
• Allows investors to set up regular contributions.
• Provides daily liquidity.
EFFICIENCY
• Allows individuals, including those with smaller
amounts of savings, to combine their money into a
single pool that can be efficiently invested.
• Provides instant diversification, based on the
chosen mutual fund.
• Having multiple investors investing in a mutual
fund enables those investors to collectively achieve
the capital scale required to purchase a diversified
portfolio of securities.
ACCESS
• Affordable access to professional investment
management, which would otherwise be quite
difficult (if not impossible) to create with a small
amount of capital.
• Simple access to a wide array of investment
vehicles, such as foreign and domestic stocks and
bonds.
• Can be purchased directly, or under the guidance of
an investment adviser. The financial advice channel
is the predominant sales channel in Canada, with
many independent and bank- and insurance-owned
distribution networks servicing investors.
Turn change into
opportunity.
Types of mutual funds
1
FIXED INCOME FUNDS
2
MONEY MARKET FUNDS
Generally made up of: government bonds,
investment-grade corporate bonds and high-yield
corporate bonds.
The risks and returns associated with fixed income
funds vary depending on the average time to maturity
(longer-term maturities will fluctuate more in price
as current interest rates change) and credit rating
(corporate bond funds generally pay higher returns
and are riskier than those made up of government
bonds) of the assets within the fund.
Interest and any capital gains earned on these
investments are paid out to investors in cash or in
the form of more fund units, or both.
Generally made up of: short-term fixed income
securities such as government bonds, treasury bills,
bankers’ acceptances, commercial paper and certificates of deposit.
Money market funds are a low-risk place to park
your money while you decide where to invest or until
you need it for life expenses like the down payment
on a home.
Unlike bank and credit union savings accounts,
money market fund units are not guaranteed. Their
lower risk stems from owning lower-volatility assets.
3
EQUITY FUNDS
Generally made up of: Stocks.
Equity funds aim to capture and distribute economic
growth by owning shares of companies. Compared
to money market and fixed income funds, there is
a greater potential for higher returns along with a
higher risk you might lose money, especially if you
cash out during times of high volatility.
There are many types of equity funds along a riskreward continuum, from higher-risk small-cap growth
stocks to lower-risk large-cap dividend stocks.
4
INDEX FUNDS
5
TARGET DATE FUNDS
6
SPECIALTY FUNDS
7
BALANCED FUNDS
Generally made up of: Assets meant to
replicate the performance of a specific index.
Index funds use different strategies to replicate
– as much as possible – the performance of a
market index (a theoretical basket of holdings
designed to represent the value of all the holdings
in that market).
The risks and returns of the fund depend on
the performance of the index, as well as the accuracy of replication. Index funds usually have
lower costs because research and trading costs
are minimized.
Also called target-based or life-cycle funds,
target date funds are designed to align with the investor’s investment horizon, maturing on a target
date such as the investor’s retirement. The fund’s
asset allocation mix is adjusted over time,
allowing a higher-risk growth strategy in the
early years and reduced risk as the target date
approaches.
Generally made up of: Assets representing
a specific sector, such as resources, real estate or
socially responsible companies.
Many investors want to invest more heavily in
particular sectors, and specialty funds are designed
to fulfill that goal.
Generally made up of: Stocks and bonds.
A one-stop, balanced solution for investors who
want to keep it simple, most balanced funds use
a set formula such as 60 per cent equity, 40 per
cent fixed income.
RISK AND RETURN
CHOOSE A FUND WITH HIGHER RISK TO HAVE THE CHANCE TO EARN HIGHER RETURNS
HIGH
Equity funds
Balanced funds
RETURN
Product: Standard
Fixed income funds
SAFEGUARDS
• Process is highly regulated to ensure that the
money is invested in a prudent manner and provide
various best practices and investor protection
features.
Discover
BMO Wealth
Management.
Money market funds
LOW
RISK
HIGH
SOLUTIONS
Breaking the cycle of investment regret
Hélène, client since 2012
Change is good if you can turn it to your advantage.
That’s what managing wealth is all about. Responding
to market shifts. Adapting to new normals. Making your hard
work pay off, both now and tomorrow.
Best Wealth Management in Canada* two years running.
See how at bmo.com/wealth
Wealth Planning | Private Banking | Investment Management | Online Investing | Trust & Estate Services
*Global Banking and Finance Review 2014 and 2015. BMO Wealth Management is the brand name for a business group consisting of Bank of Montreal and certain of its affiliates in providing wealth management products
and services. Not all products and services are offered by all legal entities within BMO Wealth Management. Banking services are offered through Bank of Montreal. Investment management services are offered through BMO
Nesbitt Burns Inc. and BMO Private Investment Counsel Inc. Estate, trust, and custodial services are offered through BMO Trust Company. Online investing services are offered through BMO InvestorLine Inc. BMO Nesbitt
Burns Inc. and BMO InvestorLine Inc. are members of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. ®/TM Registered trademarks of Bank of Montreal, used under licence.
D
riven more by emotion than
sound advice and logical decision-making, many people
make bad investment decisions,
which not only cost them money,
but often also lead to further bad
decisions as they try to recover their
losses.
David Andrews, a portfolio consultant at Franklin Templeton Investments, says the market meltdown
triggered in 2008 by the global financial crisis left a legacy of pessimism
that continues to rule the minds of
many investors despite subsequent
periods of both economic and market
recovery.
“While some investors remain on
the sidelines frozen by indecision,
others seem to shift between asset
classes with every mood-changing
headline,” he says. “Paradoxically, investors tend to view market volatility
as an isolated phenomenon, not realizing that their own fears, multiplied
by those of countless other investors,
may help fuel the turbulence.”
It takes discipline and the recognition by investors that they may need
help to get an investing strategy back
“Those who struggle to
save money for investment
purposes are more likely to
adhere to a plan by creating
a savings program that
increases over time rather
than one that immediately
requires eight per cent of
monthly income.”
David Andrews
is a portfolio consultant at Franklin
Templeton Investments
on track, adds Mr. Andrews. He suggests a four-point approach:
WORK WITH A QUALIFIED FINANCIAL ADVISER. They are trained to
recognize biases – their own and
their clients’. Their understanding of
portfolio analysis and the markets is
supported by sophisticated technology
that helps overcome bias and other
emotional shortcomings. A recent
Franklin Templeton Investments survey
of investors around the world reported
that about two-thirds of respondents
believe advice from a financial professional is important when making equity
purchase and sell decisions.
KNOW YOURSELF. Investors need to
know themselves; their understanding
of the capital markets, panic points, risk
tolerance levels and whether they are
overly confident or cautious.
HAVE AN INVESTMENT PLAN. The
decision-making process is heavily
influenced by past experience, so the
most critical first step is a carefully considered investment plan. Studies show
that investors who follow a written
David Andrews, a portfolio consultant at Franklin Templeton Investments,
says investors have to recognize when they need help to get an investing
strategy back on track. ISTOCKPHOTO.COM
plan are typically more successful and
more satisfied with their investments.
TAKE TIME TO MAKE DECISIONS. Splitsecond investment decisions are almost
always wrong. Although professional
investors like portfolio managers must
often move quickly on a trade or tactical
strategy, each action is supported by
endless hours of analysis and debate.
Portfolio managers may track securities
for years before all their criteria are met
and the price is right.
“Consciously resolving to think differently about investment decisions
can lead to creative solutions,” says
Mr. Andrews. “For example, behavioural finance experiments have
determined that while cutting immediate consumption is painful,
sacrificing future consumption is
much less so.
“Those who struggle to save money for investment purposes are more
likely to adhere to a plan by creating
a savings program that increases
over time – say from five per cent
to 10 per cent of gross income over
a five-year period – rather than one
that immediately requires eight per
cent of monthly income.”
Product: Standard
IFIC 8
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INVESTMENT FUNDS
Visit globeandmail.com/adv/investmentfunds2016
2.02
%
The average cost of ownership through advice
channels is 2.02% in Canada (excluding the impact of
taxes) and 2.00% in the U.S. (Investor Economics, 2015)
PORTFOLIO PERFORMANCE
Data suggests staying invested through
downturns pays off
RISK MANAGEMENT
What is an investor’s tolerance for
risks? This question is an important
part of the first conversation with
an adviser – the answer will greatly
influence the type of investments
that fit the investor’s needs. But
what are some of the behavioural
and economic factors behind Canadians’ attitude towards risk-taking?
A recent Investor Education Fund
survey has some of the answers:
60% of Canadians invest
based on careful analysis
based on both analysis and gut
feelings
based on gut feelings
40% of Canadians
regretted an investment based
on emotion once or twice
12% of Canadians regretted
an investment based on
emotion once or twice every
few years
4%
of Canadians regretted
an investment based on
emotion many times
Investors can minimize portfolio volatility by sitting down with an adviser to build an asset mix that matches
their risk tolerance and investment horizon, according to Rick Headrick, president of Sun Life Global Investments.
ISTOCKPHOTO.COM
December 1987), the tech meltdown
(April 2000-October 2005) and the
financial crisis (November 2007-March
2009) – made a robust nine per cent
average annualized return on their
investment. That takes into account
three bear market declines of as much
as 51.7 per cent.
Aside from staying invested when
markets turn negative, Mr. Headrick
believes it is important to work with an
adviser to build a plan that takes into
account your life, health and wealth
needs, as opposed to just your investment needs. People who are aiming for
ONLINE?
For more
information,
visit:
http://informedinvestor.ific.ca
W
hen markets get rocky, it’s
not uncommon for investors
to be tempted to sell out and
wait for the tide to turn.
But that can be a mistake, says Rick
Headrick, president of Sun Life Global
Investments, a Toronto-based mutual
fund manager that is a member of the
Sun Life Financial group.
When they sell out, investors eventually face the difficult question of when
to buy back in again, Mr. Headrick
explains. And those who miss the turn
can lose out because market rallies
often come in surges that are measured
in days not weeks, meaning that being
out of the market – even for a short
period – can cause lasting damage to
the value of a portfolio.
He advises staying invested no
matter what happens on global stock
markets. Like many of his colleagues
in the investment sector, he is telling
investors to anticipate another year of
weak growth, low investment returns
and heightened volatility in global
financial markets. “I think it is going
to continue to be a rocky year in the
markets generally, with some brighter
spots,” he says.
When short-term outlooks are negative, some investors feel more comfortable moving to the sidelines. But data
published by Sun Life supports Mr.
Headrick’s view that staying invested
pays off.
The research shows that people who
invested in January 1985 and held on
until August 2015 – through the Black
Monday market crash (September-
long-term investment success should
establish a financial plan early in life, he
says, adding that he’s already started
this discussion with his daughter, who
is in grade 10.
Mr. Headrick adds that investors can
minimize portfolio volatility by sitting
down with an adviser to build an asset
mix that matches their risk tolerance
and investment horizon and include
uncorrelated asset classes, such as
stocks and bonds, so that some go up
while others are going down. “Stocks
offer growth potential while bonds tend
to protect against losses and dampen
volatility,” he notes.
The strong performance of the funds
managed by Sun Life Global Investments, especially during periods of
extreme volatility, speak to the effectiveness of a long-term view and the culture
of risk management the organization
has developed since its inception, says
Mr. Headrick.
“I would say risk management is in
our DNA,” he adds. “We have a strong
focus on capital protection while at the
same time ensuring that our clients participate in the upside of the markets.”
Sun Life Global Investments, with
$12.3-billion in client assets under
management and a portfolio of 64
mutual funds, takes a disciplined
research-based approach with a view to
long-term performance. In addition to
investments managed by its in-house
portfolio management team, Sun Life
Advisory also offers a diverse line-up
of mutual funds through sub-advisory
relationships with firms such as MFS,
BlackRock Asset Management Canada
Ltd., Dynamic Funds, Sentry Investments, Schroders and others.
TRUSTED RESOURCES
INVESTOR CENTRE | ific.ca
FOR CONSUMERS | fcac-acfc.gc.ca
INVESTOR TOOLS | securities-administrators.ca
INVESTOR EDUCATION | bcsc.bc.ca
INVESTOR RESOURCES | albertasecurities.com
GET INFORMED | mbsecurities.ca
FINANCIAL CONSUMERS | INVESTORS | fcaa.gov.sk.ca
ONTARIO SECURITIES COMMISSION | getsmarteraboutmoney.ca
ONTARIO INVESTOR OFFICE | osc.gov.on.ca
AUTORITÉ DES MARCHÉS FINANCIERS | lautorite.qc.ca
INVESTOR INFORMATION | servicenl.gov.nl.ca
FOR CONSUMERS | fcnb.ca
FOR INVESTORS | nssc.novascotia.ca
6 DRIVERS OF A SUCCESSFUL
ADVICE RELATIONSHIP
“IFIC research reveal
reveals
that Canadians who use
a financial advisor
fare better than
those who don’t.”
don’t
Carol Lynde, President &
Chief Operating Officer
Bridgehouse Asset Managers
THE 6 DRIVERS
OF A SUCCESSFUL ADVICE RELATIONSHIP
Watch our short video to find out
more about the 6 drivers:
• Character
• Chemistry
• Caring
• Competency
• Cost-effectiveness
• Consultative approach
How does your advisor measure up?
To watch the video, visit thevaluedialogue.com
Bridgehouse Asset Managers® is a trade name of Brandes Investment Partners & Co. (Bridgehouse). Brandes Investment Partners® is a registered
trademark of Brandes Investment Partners, L.P., which is an affiliate of Bridgehouse.

Investment funds special feature in Globe and Mail

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